Methods and Procedure of State Property Privatization

Privatization of state property is one of the key directions of reforms in the Republic of Uzbekistan, ensuring the transition to a market economy, increasing the efficiency of asset management, and developing a competitive environment. The adoption of the new Law “On Privatization of State Property” (ZRU-907) marks a qualitative stage in the evolution of privatization policy, enshrining modern mechanisms for the sale of state assets that take into account international standards of transparency, accountability, and anti-corruption measures.

In Uzbek legislation, privatization is defined as the sale of state property to individuals and non-state legal entities in the prescribed manner. Objects of privatization include state real estate (including enterprises, buildings, structures, and unfinished construction projects), state shares (stocks, participatory interests), and state institutions.

An important element is the differentiation of privatization methods depending on the specifics of the object, its socio-economic significance, and the state’s strategic priorities.

Main Methods of Privatization

1. Auction

The most universal and transparent method, providing for an increase in the starting price during online electronic bidding. The winner is the participant who offers the highest price. It applies to property that does not require additional operating conditions.

2. Tender (Competitive Bidding)

Used when the buyer is assigned specific obligations (for example, modernization, job preservation). Proposals are evaluated on a 100-point scale, with up to 80 points allocated for the price offer and up to 20 points for non-financial conditions.

3. Public Invitation to Negotiations

A method aimed at attracting a wide range of investors. The process is carried out in several stages: submission of applications, familiarization with data, submission of non-binding and then binding offers, negotiations, and selection of the winner. It is characterized by a high degree of flexibility.

4. Competitive Dialogue

Applied when transaction conditions or investment requirements are uncertain. The state body conducts negotiations with each participant, after which it formulates the bidding criteria. This allows for identifying optimal privatization parameters taking into account market interests.

5. Stock Exchange Trading

Provided for the sale of state shares in accordance with securities market legislation. Ensures transparency and market-based pricing.

6. Contribution of State Shares and Real Estate to the Charter Capital of Business Entities

Used both when creating new companies with state participation and when increasing the charter capital of existing companies. This method is aimed at restructuring and capitalizing assets.

7. Privatization of State Institutions

May be carried out through:

• transformation into business entities,
• sale as a property complex,
• contribution of the property complex to the charter capital of a business entity,
• lease with the condition of subsequent privatization.

8. Lease with Condition of Subsequent Privatization

An innovative method that allows testing management efficiency within a “regulatory sandbox.” It creates conditions for adapting the institution to market realities.

 

Criteria for Selecting the Privatization Method

The choice of a particular method is made by the authorized body taking into account:

• sectoral and regional characteristics,
• financial and economic indicators of the enterprise,
• goals of privatization (maximization of revenue, attraction of investments, preservation of socially significant functions).

International Aspect and Comparative Analysis

The methods presented largely correspond to international practice (auction, tender, public offering, competitive dialogue) but are adapted to national conditions. In particular, the introduction of competitive dialogue and public invitation to negotiations demonstrates the aspiration to create hybrid models that take into account both the state’s interests and those of potential investors.

The new privatization law has enshrined a comprehensive approach to the sale of state property, expanding the toolkit of privatization procedures. This increases regulatory flexibility, ensures equality of participants, strengthens transparency, and reduces corruption risks. The practical implementation of these methods will become an important indicator of the success of reforms aimed at creating a competitive market economy in Uzbekistan.

 

Comparative Table of Privatization Methods

Privatization Method	Conditions of Application	Advantages	Limitations/Risks
Auction	Objects not requiring special operating conditions (except certain construction cases)	Transparency, simplicity, quick market price discovery	Risk of speculative purchases; limited consideration of social and investment obligations
Tender	When it is necessary to impose additional obligations on the buyer (investments, modernization, job preservation)	Considers both price and non-financial conditions; protects social interests	Lengthy procedures; risk of formal treatment of non-financial obligations
Public Invitation to Negotiations	For large/complex objects requiring an individual approach	Attracts a wide range of investors; flexibility of negotiations	High organizational costs; risk of behind-the-scenes arrangements with low transparency
Competitive Dialogue	When sales or investment conditions are uncertain	Allows clarification of deal parameters jointly with investors; flexibility	Prolonged process; need for professional consultants
Stock Exchange Trading	For state shares, under securities market legislation	High transparency; market-based pricing; attracts institutional investors	Susceptibility to stock market fluctuations; limited public access
Contribution to Charter Capital	When creating or increasing the capital of a business entity	Enables restructuring; asset capitalization; preserves state’s share	Risk of dilution of control; challenges in valuation and subsequent management
Privatization of State Institutions	Institutions to be transformed, sold, or leased	Flexibility (sale, transformation, lease); ability to preserve functions through lease-with-purchase	Risk of social tension (e.g., when institutions are closed); need for succession of labor relations
Lease with Subsequent Privatization	For testing in a “regulatory sandbox”	Gradual adaptation; ability to assess management effectiveness	Risk of delaying privatization; need for strict tenant control

 

Procedure of State Property Privatization

1. Development of Privatization Programs

• Initiators: Authorized state body (State Assets Management Agency – SAMA) and its territorial departments.
• Basis: Proposals from state bodies, local authorities, as well as individuals and legal entities.
• Types of programs:

• Privatization program for republican property (approved by the Cabinet of Ministers),
• Privatization programs for municipal property (approved by local authorities).

• Special feature: certain objects may be privatized directly at market value on the basis of Presidential acts.

2. Preparation for Privatization

• A “roadmap” is developed, specifying conditions, stages, deadlines, and valuation procedure.
• Inventory, valuation, and review of the valuation report are carried out.
• Measures may be applied to increase investment attractiveness (restructuring, infrastructure improvements).
• Professional consultants (appraisers, lawyers, auditors) may be engaged.
• For large enterprises, an expert group may be created.

3. Restrictions During Privatization

• From the date of the program’s adoption, alienation, write-off, pledge, or other disposition of the property included in the program is prohibited, except as expressly provided for in the “roadmap.”

4. Determination of the Starting Price

• Based on a report from an independent appraisal organization.
• The authorized body has the right to adjust the price considering market conditions.
• For transactions involving international audit firms, additional review of the report is not required.

5. Selection and Implementation of Privatization Method

• The method (auction, tender, public invitation to negotiations, competitive dialogue, stock exchange trading, etc.) is selected by the authorized body.
• Bidding is organized through electronic online platforms.
• Participants are required to make a deposit of 3% to 15% of the starting price depending on the object’s value.
• The winner is determined according to the criteria of the chosen method (price, conditions, investment obligations).

6. Execution of the Sale and Purchase Agreement

• The contract is executed electronically.
• Mandatory provisions: price, procedure and terms of payment, rights and obligations of the parties, liability, guarantees.
• The balance holder of the object must sign the acceptance-transfer act within 5 working days.

7. Payment and Installments

• General payment term – 1 month.
• An installment plan of up to 36 months may be provided (depending on the size of the transaction).
• If installments exceed 65% of the amount, they must be secured by an insurance policy or bank guarantee.

8. Registration of Ownership Rights

• After fulfillment of obligations, a state order or a depository account statement (for shares) is issued.
• Ownership rights include the non-agricultural land plot associated with the object.

9. Monitoring and Control

• The authorized body monitors compliance with contract terms (payment schedule, investment obligations, object operation).
• In case of breach, penalties apply; mediation or court proceedings are possible.
• The statute of limitations for disputes is 3 years.

10. Publicity and Reporting

• Information on each object is published at least 30 days before the start of bidding.
• Bidding results, including buyer data and price, are published within 3 working days.
• The authorized body annually publishes a consolidated privatization report by April 1.

 

Roadmap for State Property Privatization

Stage	Actions	Responsible Authorities	Deadlines
1. Formation of Privatization Program	Collection of proposals, definition of the list of objects, preparation of the program (republican or municipal)	SAMA, territorial departments, Cabinet of Ministers, local authorities	Before program approval (set by the authority)
2. Approval of Program	Approval by the Cabinet of Ministers (republican level) or local councils (municipal level)	Cabinet of Ministers, Jokargy Kenes of Karakalpakstan, Councils of People’s Deputies	During the planning procedure
3. Preparation of Object “Roadmap”	Definition of conditions, stages, deadlines, valuation and review, increasing investment attractiveness	SAMA, territorial departments, engaged consultants	Within 3 working days after roadmap approval – communicated to executors
4. Inventory and Valuation	Conducting inventory, engaging appraisal organizations, determining starting price	SAMA, territorial departments, independent appraisers	Before placing on auction
5. Publication of Information	Announcement of object (data, starting price, conditions) in media and websites	SAMA, auction organizer	At least 30 days before bidding
6. Conduct of Bidding/Negotiations	Organization of auction, tender, public invitation to negotiations, competitive dialogue, or stock exchange trading	SAMA, e-trading platform operator, consultants	Depends on method (usually 10–60 days)
7. Determination of Winner	Selection of winner by price and/or conditions, drafting of protocol	SAMA, auction operator	On the day of bidding completion
8. Execution of Sale and Purchase Agreement	Signing of contract electronically, agreement on terms, signing of acceptance-transfer act	SAMA, territorial departments, buyer, balance holder	Within 10 working days after bidding
9. Payment for Property	Payments made: lump sum (1 month) or installments (up to 36 months)	Buyer; control – SAMA	1–36 months depending on transaction amount
10. Registration of Ownership	Issuance of state order or depository account statement	SAMA, public service centers	Within 5 working days after full payment
11. Monitoring of Obligations	Control of contract conditions (payments, investments, object operation)	SAMA, territorial departments	Until full performance of obligations
12. Public Reporting	Publication of bidding results and annual reports	SAMA, auction operator	Results – within 3 days, consolidated report – annually by April 1